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Question
Following is the Balance Sheet of Kusum, Sneh and Usha as on 31st March, 2019, who have agreed to share profits and losses in proportion of their capitals:
| Liabilities | ₹ | Assets | ₹ | ||
| Capital A/cs: | Land and Building | 4,00,000 | |||
| Kusum | 4,00,000 | Machinery | 6,00,000 | ||
| Sneh | 6,00,000 | Closing Stock | 2,00,000 | ||
| Usha | 4,00,000 | 14,00,000 | Sundry Debtors | 2,20,000 | |
| Employees' Provident Fund | 70,000 | Less: Provision for Doubtful Debts | 20,000 | ||
| Workmen Compensation Reserve | 30,000 | Cash at Bank | 2,00,000 | ||
| Sundry Creditors | 1,00,000 | 2,00,000 | |||
| 16,00,000 | 16,00,000 | ||||
On 1st April, 2019, Kusum retired from the firm and the remaining partners decided to carry on the business. It was agreed to revalue the assets and reassess the liabilities on that date, on the following basis:
(a) Land and Building be appreciated by 30%.
(b) Machinery be depreciated by 30%.
(c) There were Bad Debts of ₹ 35,000.
(d) The claim against Workmen Compensation Reserve was estimated at ₹ 15,000.
(e) Goodwill of the firm was valued at ₹ 2,80,000 and Kusum's share of goodwill was adjusted against the Capital Accounts of the continuing partners Sneh and Usha who have decided to share future profits in the ratio of 3 : 4 respectively.
(f) Capital of the new firm in total will be the same as before the retirement of Kusum and will be in the new profit-sharing ratio of the continuing partners.
(g) Amount due to Kusum be settled by paying ₹ 1,00,000 in cash and balance by transferring to her Loan Account which will be paid later on.
Prepare Revaluation Account, Capital Accounts of Partners and Balance Sheet of the new firm after Kusum's retirement.
Solution
Revaluation Account
|
Dr. |
Cr. |
|||
|
Particulars |
Amount (₹) |
Particulars |
Amount (₹) |
|
|
Machinery A/c |
1,80,000 |
Land and Building A/c |
1,20,000 |
|
|
Bad Debts A/c (35,000 – 20,000) |
15,000 |
Loss on Revaluation transferred to: |
|
|
|
|
|
Kusum |
21,429 |
|
|
|
|
Sneh |
32,142 |
|
|
|
|
Usha |
21,429 |
75,000 |
|
|
1,95,000 |
|
1,95,000 |
|
Partners’ Capital Account
|
Dr. |
Cr. |
||||||
|
Particulars |
Kusum |
Sneh |
Usha |
Particulars |
Kusum |
Sneh |
Usha |
|
Revaluation A/c (Loss) |
21,429 |
32,142 |
21,429 |
Balance b/d |
4,00,000 |
6,00,000 |
4,00,000 |
|
Usha’s Capital A/c |
– |
– |
80,000 |
Workmen Compensation Fund |
4,286 |
6,428 |
4,286 |
|
Bank A/c |
1,00,000 |
– |
– |
Usha’s Capital A/c |
80,000 |
– |
– |
|
Kusum’s Loan A/c |
3,62,857 |
– |
– |
|
|
|
|
|
Balance c/d |
– |
5,74,286 |
3,02,857 |
|
|
|
|
|
|
4,84,286 |
6,06,428 |
4,04,286 |
|
4,84,286 |
6,06,428 |
4,04,286 |
|
Balance c/d |
– |
6,00,000 |
8,00,000 |
Balance b/d |
– |
5,74,286 |
3,02,857 |
|
|
|
|
|
Bank A/c (WN3) |
– |
25,714 |
4,97,143 |
|
|
– |
6,00,000 |
8,00,000 |
|
– |
6,00,000 |
8,00,000 |
Balance Sheet
as at March 31, 2019
|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
|
|
Creditors |
1,00,000 |
Land & Building |
5,20,000 |
|
|
Employee’s Provident Fund |
70,000 |
Machinery (6,00,000 – 1,80,000) |
4,20,000 |
|
|
Workmen’s Compensation Claim |
15,000 |
Stock |
2,00,000 |
|
|
Kusum’s Loan |
3,62,857 |
Sundry Debtors (2,20,000 – 35,000) |
1,85,000 |
|
|
Capital A/c : |
|
Bank |
6,22,857 |
|
|
Sneh |
6,00,000 |
|
|
|
|
Usha |
8,00,000 |
14,00,000 |
|
|
|
|
19,47,857 |
|
19,47,857 |
|
Working Notes
WN 1 Calculation of Gaining Ratio
Old Ratio (Kusum, Sneh and Usha) = 2:3:2
New Ratio (Sneh and Usha) = 3:4
Gaining Ratio = New Ratio – Old Ratio
`"Sneh's share" = 3/7 - 3/7 = "Nil"`
`"Usha's share"= 4/7 - 2/7 = 2/7`
WN2 Adjustment of Goodwill
Total Goodwill of the Firm = 2,80,000
`"Kusum's share in Goodwill" = 2/7 xx 2,80,000`
= `80,000`
It is to be adjusted by the Gaining partners i.e. only by Usha
WN3 Adjustment of Capital
Total Capital of firm before kusums Retirement = `14,00,000`
`"New Profit sharing Ratio" = 3 : 4`
`"sneh's new capital" = 3/7 xx 14,00,000 = 6,00,000`
`"usha's new capital" = 4/7 xx 14,00,000 = 8,00,000`
|
Particulars |
Sneh |
Usha |
|
New Capital Balance |
6,00,000 |
8,00,000 |
|
Adjusted Old Capital Balance |
5,74,286 |
3,02,857 |
|
Cash brought in by the Partner |
25,714 |
4,97,143 |
WN4
Cash at Bank A/c
|
Dr. |
Cr. |
||
|
Particulars |
Amount (₹) |
Particulars |
Amount (₹) |
|
Balance b/d |
2,00,000 |
Kusum’s Capital A/c |
1,00,000 |
|
Sneh’s Capital A/c |
25,714 |
Balance c/d |
6,22,857 |
|
Usha’s Capital A/c |
4,97,143 |
|
|
|
|
7,22,857 |
|
7,22,857 |
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Liabilities |
Amount (₹) |
Assets |
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|
Sundry Creditors |
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|
Reserve Fund |
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||
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|
Liabilities |
₹ |
Assets |
₹ |
||
|
Creditors |
11,000 |
Building |
20,000 |
||
|
Reserves |
6,000 |
Machinery |
30,000 |
||
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|
Capital A/cs: |
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| A |
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| C |
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|||
|
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|
Liabilities |
₹ |
Assets |
₹ |
||
|
Sundry Creditors |
40,000 |
Goodwill |
25,000 |
||
|
Bills Payable |
15,000 |
Leasehold |
1,00,000 |
||
|
Workmen Compensation Reserve |
30,000 |
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|
Capital A/cs: |
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| S |
1,25,000 |
Debtors | 40,000 | ||
| T |
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3,50,000 |
Cash at Bank | 40,000 | |
|
4,35,000 |
4,35,000 |
||||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
|
Creditors |
2,00,000 |
Building |
2,00,000 |
||
|
Employees' Provident Fund |
1,50,000 |
Machinery |
3,00,000 |
||
|
General Reserve |
36,000 |
Furniture | 1,10,000 | ||
| Investment Fluctuation Reserve | 14,000 | Investment (Market value ₹ 86,000) | 1,00,000 | ||
|
Capital A/cs: |
Debtors | 80,000 | |||
| X |
3,00,000 |
Cash at Bank | 1,90,000 | ||
| Y | 2,50,000 | Advertisement Suspense | 1,20,000 | ||
| Z |
1,50,000 |
7,00,000 |
|||
|
11,00,000 |
11,00,000 |
||||
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| Year | 2014-15 | 2015-16 | 2016-17 | 2017-18 |
| Profits (₹) | 1,70,000 | 1,80,000 | 1,90,000 | 1,80,000 |
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BALANCE SHEET as at 31st March, 2018
| Liabilities | Amount (₹) |
Assets | Amount (₹) |
||
| X's Capital A/c | 2,40,000 |
Machinery |
2,40,000 | ||
| Y's Capital A/c | 1,60,000 | Furniture | 1,50,000 | ||
|
Z's Capital A/c |
80,000 | 4,80,000 | Investments | 40,000 | |
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| Y's Current A/c | 5,000 | Sundry Debtors | 50,000 | ||
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| Bills Payable | 34,000 | Cash at Bank | 37,000 | ||
| Sundry Creditors | 40,000 | Cash in Hand | 22,000 | ||
| Z's Current A/c | 10,000 | ||||
| 6,35,000 | 6,35,000 | ||||
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(f) Profit for the year ended 31st March, 2018 was ₹ 8,16,000 and Z's share of profit till the date of death is to be determined on the basis of profit for the year ended 31st March, 2018.
(g) The Fixed Capital Method is to be converted into the Fluctuating Capital Method by transferring the Current Account balances to the respective Partners' Capital Accounts.
Prepare the Revaluation Account, Partners' Capital Accounts and prepare C's Executors's Account to show that C's Executors were paid in two half-yearly instalments plus interest of 10% p.a. on the
unpaid balance. The first instalment was paid on 31st December, 2018.
A, B and C were partners in a firm sharing profits in the ratio of 3 : 2 : 1. They admitted D as a new partner for 1/8th share in the profits, which he acquired 1/16th from B and 1/16th from C. Calculate the new profit-sharing ratio of A, B, C and D.
X, Y and Z are partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. Their Balance Sheet as at 31st March, 2018 was as follows:
| Liabilities | Amount (₹) |
Assets | Amount (₹) |
||
| Sundry Creditors | 18,000 | Goodwill | 12,000 | ||
| Investments Fluctuation Reserve | 7,000 | Patents | 52,000 | ||
| Workmen Compensation Reserve | 7,000 | Machinery | 62,400 | ||
| Capital A/cs: | Investment | 6,000 | |||
| X | 1,35,000 | Stock | 20,000 | ||
| Y | 95,000 | Sundry Debtors | 24,000 | ||
|
Z |
74,000 | 3,04,000 | Less: Provision for Doubtful Debts | 4,000 | 20,000 |
| Loan to Z | 1,000 | ||||
| Cash at Bank | 600 | ||||
| Profit and Loss A/c | 1,50,000 | ||||
| Z's Drawings | 12,000 | ||||
| 3,36,000 | 3,36,000 | ||||
Z died on 1st April, 2018, X and Y decide to share future profits and losses in ratio of 3 : 5. It was agreed that:
(i) Goodwill of the firm be valued 212 years' purchase of average of four completed years' profits which were: 2014→₹ 1,00,000; 2015-16→₹ 80,000; 2016→17 ₹ 82,000.
(ii) Stock is undervalued by ₹ 14,000 and machinery is overvalued by ₹ 13,600.
(iii) All debtors are good. A debtor whose dues of ₹ 400 were written off as bad debts paid 50% in full settlement.
(iv) Out of the amount of insurance premium debited to Profit and Loss Account, ₹ 2,200 be carried forward as prepaid insurance premium.
(v) ₹ 1,000 included in Sundry Creditors is not likely to arise.
(vi) A claim of ₹ 1,000 on account of Workmen Compensation to be provided for.
(vii) Investment be sold for ₹ 8,200 and a sum of ₹ 11,200 be paid to executors of Z immediately. The balance to be paid in four equal half-yearly instalments together with interest @ 8% p.a. at half year rest.
Show Revaluation Account, Capital Accounts of Partners and the Balance Sheet of the new firm.
Find New Profit-sharing Ratio:
R and T are partners in a firm sharing profits in the ratio of 3 : 2. S joins the firm. R surrenders 1/4th of his share and T 1/5th of his share in favour of S.
Find New Profit-sharing Ratio:
A and B are partners sharing profits and losses in the ratio of 3 : 2. They admit C for 1/5th share in the profit. C acquires 1/5th of his share from A and 4/5th share from B.
Find New Profit-sharing Ratio:
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Find New Profit-sharing Ratio:
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| Book Values (₹) | |
| General Reserve | 6,000 |
| Profit and Loss A/c (Credit) | 24,000 |
| Advertisement Suspense A/c | 12,000 |
Pass an Adjustment Entry.
A, B and C who are presently sharing profits and losses in the ratio of 5 : 3 : 2 decide to share future profits and losses in the ratio of 2 : 3 : 5. Give the Journal entry to distribute 'Workmen Compensation Reserve' of ₹ 1,20,000 at the time of change in profit-sharing ratio, when:
(i) no information is given; (ii) there is no claim against it.
X, Y and Z who are presently sharing profits and losses in the ratio of 5 : 3 : 2 decide to share future profits and losses in the ratio of 2 : 3 : 5. Give the journal entry to distribute 'Workmen Compensation Reserve' of ₹ 1,20,000 at the time of change in profit-sharing ratio, when there is a claim of ₹ 80,000 against it.
A, B and C are sharing profits and losses in the ratio of 2 : 2 : 1. They decided to share profit w.e.f. 1st April, 2019 in the ratio of 5 : 3 : 2. They also decided not to change the values of assets and liabilities in the books of account. The book values and revised values of assets and liabilities as on the date of change were as follows:
| Book values (₹) | Revised values (₹) | |
| Machinery | 2,50,000 | 3,00,000 |
| Computers | 2,00,000 | 1,75,000 |
| Sundry Creditors | 90,000 | 75,000 |
| Outstanding Expenses | 15,000 | 25,000 |
Pass an adjustment entry.
A, B, C and D were partners in a firm sharing profits in the ratio of 3 : 4 : 2 : 1. On 31.3.2022, C retired and his share was taken over equally by A and D. Calculate the new profit sharing ratio of A, B and D.
